Friday, March 4, 2011

PPACA:Clear As Mud

Ok the best discussion I have seen yet of the nondiscrimination provisions of PPACA are detailed below compliments of You can read the source materials below or just take my simplified and nevertheless accurate summary that on a party line vote using reconciliation Democrats passed a stupid law that made many employer provided health plans subject to fines of up to $100 per employee per day until shortly before Christmas 2010 when no one was paying attention the IRS suspended enforcement to avoid the embarrasment of scorn by millions of American who would have lost coverage when their employers dropped it to avoid onerous IRS fines January 1 , 2011. It just goes On & On kind of like this video happy Friday Peeps and by the way does REK look like he could use an EAP? Look at those shades.

Section 2716 of the Patient Protection and Affordable Care Act (PPACA) contains a provision that applies the “non-discriminatory” requirements of Section 2716 of the Public Health Services Act (PHSA) [Section 105(h) of the Internal Revenue Code] to all non-grandfathered health plans issued on or after September 23, 2010. This provision prohibits health plans from discriminating in the way benefits or costs are allocated and shared among classes of employees.

The implementation of the nondiscrimination requirements continues to be delayed. On January 10, the Internal Revenue Service (IRS) issued Notice 2011-2, which states that compliance with PPACA is once again delayed for insured group health benefit plans until at least March 11.1

There is significant confusion surrounding the nondiscrimination requirements. The following information details the timeline of the attempts on the part of the federal regulators to clarify these issues.
Provision and Scope

"(a) IN GENERAL – The plan sponsor of a group health plan (other than a self-insured plan) may not establish rules relating to the health insurance coverage eligibility (including continued eligibility) of any full-time employee under the terms of the plan that are based on the total hourly or annual salary of the employee or otherwise establish eligibility rules that have the effect of discriminating in favor of higher wage employees.2”

Generally, the regulations issued pursuant to Section 105(h) apply to employer-sponsored health benefit plans that cover premiums and expenses for qualified medical and other specialty plans.3 The recent amendments expand the nondiscrimination provisions to health benefit plans irrespective of whether they are fully-insured, self funded or medical reimbursement plans. Some types of plans are excluded from the new requirements, including “grandfathered” plans, government-sponsored health plans and limited benefit plans.
The “benefits” provided under the health plan must not discriminate in favor of highly compensated individuals. The health plan should incorporate several design features in order to be non-discriminatory. For example, plans should:
Establish parity in employee contributions for each benefit level

Preclude offering lower co-pays for highly compensated employees

Not impose different waiting periods

The employer sponsoring the health plan also must not discriminate in favor of highly compensated individuals in actual operation. For example, discrimination in operation could arise if a plan administrator approves certain claims for medical expenses under the utilization management process for highly compensated employees while denying them to lower compensated employees.
As the regulation is developed, the definition of terms such as “benefit” and “highly compensated” will continue to be addressed in the provision development.
Comments and Timelines

Currently, implementation of the anti-discrimination provision continues to be delayed due to several outstanding issues that need to be addressed. The Department of Treasury, along with the Departments of Labor (DOL) and Health and Human Services (HHS), has released a series of public notices to gain guidance on how to best implement this provision.
Notice one: IRS Bulletin 2010-634

The first notice to address Section 2716 was issued on May 17, 2010. “This notice invites public comments concerning the application of rules prohibiting insured group health plans from discriminating in favor of highly compensated individuals. The United States Department of Labor and the United States Department of Health and Human Services have reviewed this notice and have advised the Department of the Treasury and the Internal Revenue Service (IRS) that they agree with it.”
Previous Request for Comments
“The final regulations under section 105(h) of the Code, prohibiting discrimination in favor of highly compensated individuals under self-insured medical expense reimbursement plans, were issued in 1981. The Department of the Treasury and the IRS are considering issuing guidance on the extension, through section 2716 of the PHSA and new section 9815 of the Code, of the requirements of section 105(h)(2) to insured group health plans. The Department of the Treasury and the IRS request comments on what additional guidance relating to the application of section 105(h) (2) would be helpful with respect to insured group health plans.
Comment due: November 4, 2010
Notice two: IRS Bulletin 2011-15

The second notice to address Section 2716 was issued on December 22, 2010. Notice 2011-1 which states compliance with the nondiscrimination provisions of the PPACA are suspended for insured group health benefit plans until an undefined date.
Request for Comments
“Comments submitted in response to Notice 2010-63 maintained that, without regulations or other administrative guidance under Section 2716, plan sponsors are uncertain how to apply the nondiscrimination provisions. In addition to what is meant by rules 'similar to,' comments raised a number of other issues regarding the application of Section 2716. Comments suggested that guidance address the application of Section 2716 before plan years beginning in 2014 (when the State Exchanges, employer responsibility and penalty provisions, and related provisions take effect) and also in and after 2014. The Departments recognize that the guidance under Section 2716 must take into consideration the Exchange operations and individual and plan sponsor requirements that go into effect after 2013.”
Notice three: IRS Bulletin 2011-26

The IRS continued to delay the implementation of Section 2716. The agency reissued Notice 2011-1 on January 10, 2011 to gain additional guidance.
Additional Request for Comments
Notice 2011-1 asks 13 key questions that need to be address to successfully implement Section 2716:
The basis on which the determination of what constitutes non-discriminatory benefits under Section 105(h)(4) should be made and what is included in the term “benefits.” For example, is the rate of employer contributions toward the cost of coverage (or the required percentage or amount of employee contributions) or is the duration of an eligibility waiting period treated as a “benefit” that must be provided on a non-discriminatory basis?

The suggestion made in previous comments that the Departments have the authority to provide for an alternative method of compliance with Section 2716 that would involve only an availability of coverage test.

The application of Section 2716 to insured group health plans beginning in 2014 when the health insurance exchanges become operational and the employer responsibility provisions (Section 4980H of the Code), the premium tax credit (Section 36B of the Code), and the individual responsibility provisions (Section 5000A of the Code) and related Affordable Care Act provisions are effective.

The suggestion in previous comments that the non-discriminatory classification provision in Section 105(h)(3)(A)(iii) could be used as a basis to permit an insured health care plan to use a highly compensated employee definition in Section 414(q) of the Code for purposes of determining the plan’s non-discriminatory classification.

The suggestion in previous comments that the nondiscrimination standards should be applied separately to employers sponsoring insured group health plans in distinct geographic locations and on whether application of the standards on a geographic basis should be permissive or mandatory.

The suggestion in previous comments that the guidance should provide for “safe harbor” plan designs. Specifically, comments are requested on potential safe and unsafe harbor designs that are consistent with the substantive requirements of Section 105(h).

Whether employers should be permitted to aggregate different, but substantially similar, coverage options for purposes of Section 2716 and, if so, the basis upon which a “substantially similar” determination could be made.

The application of the nondiscrimination rules to “expatriate” and “inpatriate” coverage.

The application of the nondiscrimination rules to multiple employer plans.

The suggestion in previous comments that coverage provided to a “highly compensated individual” (as defined in Section 105(h)(5)) on an after-tax basis should be disregarded in applying Section 2716.

The treatment of employees who voluntarily waive employer coverage in favor of other coverage.

Potential transition rules following a merger, acquisition or other corporate transaction.

The application of the sanctions for noncompliance with Section 2716.

Comments due: March 11, 2011

Next Steps

To ensure the smooth implementation of Section 2716, the federal agencies reviewing comments have stated that the request for public comment and guidance is critical. Unfortunately, the anti-discrimination provisions, along with many other PPACA requirements, are difficult to implement due to limited or poor statutory language construction.
Comments are due on March 11, 2011 for Notice 2011-17, and analysis by HHS, DOL and the IRS will take place over the next few months. Karen Levin out of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities) will be the main drafter of the next notice.

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